Jaguar announced this morning that it would stop producing its X-Type car at Halewood, Merseyside, by December. As well as cutting up to 300 positions, the company plans to halt production at the factory for at least three weeks between September and the end of the year.

"Our industry has been especially badly hit by the recession and the premium sector more than others," said David Smith, the Jaguar Land Rover chief executive.

Smith said that Jaguar Land Rover's retail sales had fallen by 28% in the past 10 months. It has already cut more than 2,000 jobs, including 450 in January.

Production data released last week suggested that the slump in car sales was slowing, but Smith insisted that tough choices had to be taken.

"Ceasing production of the X-Type early, with further redundancies and temporary shutdowns at Halewood is necessary to protect our other investment plans. Other actions will be determined by the state of the market," he said.

Around 2,000 people are employed at the Halewood site, which has made the X-Type Jaguar since 2001 and also manufactures the Land Rover Freelander.

Local MP Eddie O'Hara has claimed the site is being used as a "poker chip" in a high stakes game between its owners and the government. Indian conglomerate Tata, which owns Jaguar Land Rover, wants the government to act as the guarantor on a £340m European loan to develop "clean cars".

A decision on this loan has still not been made, but business secretary Lord Mandelson has pledged to do everything in his power to keep the plant open.

"We do need to be confident that the taxpayers' money that goes into Jaguar will come back out again – that the taxpayer won't be left high and dry," he said.

Len McCluskey, assistant general secretary of Unite, said it was essential that Halewood started producing a new vehicle soon.

"A new product is pivotal to the long-term future of the Halewood plant," he said. "These losses also underline the continuing uncertainty around the UK car industry at present."